Author: Zhang Feng

Looking back at the P2P internet finance regulatory storm that swept across the country from 2014 to 2018, the trajectory from rampant growth to comprehensive withdrawal provides a profound mirror for the currently booming RWA (Real World Assets) crypto business. According to statistics, by the end of 2020, the number of P2P platforms actually operating in the country had dropped to zero from a peak of over 5,000, with outstanding balances exceeding 800 billion yuan. This figure highlights the devastating consequences of financial innovation detaching from regulatory frameworks. The P2P industry fell from the halo of "financial innovation" into the abyss of "illegal fundraising," with the core lesson being the failure to accurately grasp the essence of finance, neglect regulatory logic, and underestimate legal risks.

According to a forecast by the Boston Consulting Group, by 2030, the market size of tokenized assets could reach $16 trillion, and the explosive growth behind this hides complex compliance challenges. The RWA crypto business—an emerging field that introduces traditional assets such as real estate, bonds, and commodities into the blockchain world through tokenization—many believe will retrace a similar historical development path.

As the saying goes, "Reviewing the old to understand the new," we will construct a unique three-dimensional framework of technology + finance + law, first establishing compliance as a new paradigm of core productivity, and then systematically deconstructing the five layers of legal compliance risks faced by RWA crypto businesses, proposing a classified and graded compliance strategy to provide practitioners with a clear response framework.

I. New Compliance Paradigm: From Cost Center to Value Engine

In the traditional view of financial business, compliance is often seen as a necessary cost expenditure, a "brake" on innovation rather than an "engine." However, in the field of RWA crypto business, where "technology + finance + law" are deeply integrated, leading practitioners are redefining compliance in practice: it is no longer merely a cost center, but a crucial productivity component, an intrinsic part of product competitiveness formation, development, and improvement.

First, compliance is the cornerstone of building market trust, directly translating into the core competitiveness of products. The core of RWA business lies in mapping the rights and interests of real-world assets onto the blockchain, and its success hinges on gaining the dual trust of participants from both the traditional financial world and the emerging crypto market. An RWA project that operates robustly within a regulatory framework, undergoes strict audits, has clear asset ownership, and transparent information disclosure can significantly lower the cognitive threshold and trust costs for investors.

For example, an RWA token that has obtained permission from a specific jurisdiction, collaborates with regulated custodians, and regularly publishes audited reserve proofs is undoubtedly more attractive to institutional funds and conservative investors compared to similar products that operate outside regulatory oversight. This trust premium is directly reflected in higher valuations, deeper liquidity, and stronger market resilience, making compliance the most effective "pass" for market entry and a brand "moat."

Second, the combination of compliance processes and technological tools can drive a qualitative change in operational efficiency, which itself is a manifestation of productivity. Codifying and automating compliance requirements (such as KYC/AML, investor suitability, transaction reporting, etc.) through technological innovations like smart contracts, zero-knowledge proofs, and on-chain analysis can greatly reduce manual operation costs and error rates, achieving near real-time compliance monitoring and risk interception.

The embedding of this "compliance technology" not only meets regulatory requirements but also optimizes user experience—for instance, a smart contract that pre-sets qualified investor verification can enable instant and secure settlement of funds, avoiding the cumbersome offline reviews and long waiting periods typical in traditional finance. Here, compliance is no longer an added step at the end of the business process but is deeply integrated into the product architecture from the design stage, becoming a key engine for enhancing efficiency and ensuring a smooth user experience.

Finally, a forward-looking compliance strategy can win businesses strategic initiative and long-term development space. In fields where regulatory policies are still exploratory, actively communicating with regulatory agencies, participating in "regulatory sandboxes," and embracing international best practices means being able to understand, influence, and adapt to rules earlier. This "proactive compliance" posture allows companies to foresee and avoid potential compliance pitfalls, survive during industry reshuffling and policy tightening, and quickly capture the market with their first-mover compliance advantages.

During the P2P wave, those platforms that actively sought bank custody and conducted strict information disclosure early on, although they bore higher operational costs in the short term, won longer survival windows and better market reputations. For RWA, laying out plans in advance on complex legal issues such as data privacy, cross-border regulatory collaboration, and risk isolation will accumulate valuable institutional and technological capital for companies to cope with the future unification and refinement of global regulations.

Therefore, in the competition of RWA, the most successful companies will be those that can best integrate technological mastery, understanding of financial risks, and legal compliance wisdom. In this model, compliance has completely undergone a paradigm revolution from being a passive defensive cost to an active value-creating core productivity.

II. Historical Reflection: The Warning of the P2P Regulatory Storm and the Coexistence of Opportunities and Risks in RWA

The rise and fall of the P2P industry reveal the core law of the relationship between financial innovation and regulation: any financial innovation that detaches from regulatory frameworks will ultimately pay a heavy price. P2P initially positioned itself as an "information intermediary" to evade financial regulation but, in practice, morphed into a credit intermediary, accumulating systemic risks such as maturity mismatch, fund pooling, and self-financing. When regulation tightened comprehensively, the entire industry faced cleanup, and many platforms were forced to exit the market due to crimes such as illegal public deposit absorption.

From a legal perspective, the fundamental reason for the decline of the P2P industry lies in its business model completely matching the four elements of the crime of illegal public deposit absorption as defined in Article 176 of China's Criminal Law: absorbing funds without legal permission from relevant authorities, publicly promoting through media, promising repayment of principal and interest, and absorbing funds from unspecified members of society. This fundamental legal flaw in characterization led to platforms of all sizes ultimately being unable to escape legal sanctions. The introduction of the "Interim Measures for the Administration of Business Activities of Online Lending Information Intermediaries" in 2016 should have provided a compliance development path for the industry, but most platforms failed to adjust their business models in time, leading to systemic collapse.

The RWA crypto business surpasses P2P in terms of technological innovation, but its core risk logic is similar. RWA tokenizes traditional assets through blockchain technology, achieving asset fragmentation, liquidity enhancement, and transaction efficiency optimization, reflecting the deep integration of "technology + finance." However, this integration also brings more complex legal challenges: the legal nature of tokenized assets, coordination of cross-border compliance, and the legal validity of smart contracts intertwine to form a multidimensional risk matrix.

Observing global regulatory dynamics, the 2017 SEC investigation report on the DAO incident concluded that tokens are considered securities, and there are numerous cases in the U.S. where specific tokens are identified as securities based on the "Howey Test." The 2023 lawsuit against Coinbase is the latest interpretation of the securitization attributes of crypto assets. At the same time, the implementation of the EU MiCA regulation provides a new regulatory framework for the crypto asset market, and these foreign regulatory experiences hold significant reference value for the development of RWA businesses in China. Under the Chinese legal framework, RWA businesses must also face restrictions from regulations such as Article 9 of the Securities Law regarding public issuance of securities and the "Announcement on Preventing Risks of Token Issuance Financing," which constitute the basic boundaries of business compliance.

III. Five Layers of Risk Warning: A Progressive Deconstruction from Civil Disputes to Model Violations

Based on reflections on the lessons of P2P and an analysis of the characteristics of RWA, we propose to construct a five-layer risk warning model from superficial to deep, providing practitioners with a clear risk identification framework. This model not only considers the legal nature of risks but also comprehensively assesses the probability of occurrence and severity of harm, providing a theoretical basis for differentiated compliance strategies.

First Layer: Civil Dispute Risk—Technical Defects and Contractual Vulnerabilities

This is the most superficial risk, primarily arising from imperfections in technical implementation and business arrangements. In RWA business, coding errors in smart contracts may lead to failures or errors in asset ownership transfer; deviations in oracle data feeds may trigger liquidation disputes; unclear legal connections between token holders and underlying asset rights may result in ownership disputes. Although such risks do not directly touch on administrative or criminal red lines, they can erode user trust and affect business sustainability.

In RWA scenarios, similar technical failures in smart contracts could lead to incorrect transfers or freezes of real-world assets, triggering large-scale civil claims. From a legal applicability perspective, such disputes need to be handled according to the contract section of the Civil Code and relevant judicial interpretations, but the anonymity and decentralization features of blockchain technology pose challenges to traditional evidence rules and jurisdiction determination.

The lesson from the P2P era is that seemingly simple disputes over debt transfer contracts initially evolved into collective lawsuits as business complexity increased, ultimately dragging down many platforms. RWA practitioners need to establish a mechanized dispute prevention and resolution system, including multiple audits of smart contracts, clear legal document design, and effective customer communication mechanisms, to keep civil disputes within manageable limits. Particularly, introducing formal verification technology in the smart contract development phase and clearly stipulating jurisdiction and governing law in legal document design can significantly reduce the probability of civil disputes and disposal costs.

Second Layer: Administrative Procedure Violation Risk—Lack of Access and Reporting Norms

This layer of risk involves violations of administrative regulatory procedures, mainly manifested in engaging in activities requiring special licenses without permission, failing to fulfill reporting obligations as required, and insufficient information disclosure. In RWA business, token issuance may touch upon the procedural requirements for public issuance of securities, asset custody arrangements may violate specific industry regulatory provisions, and cross-border business may overlook local filing procedures.

According to China's current legal framework, the administrative licenses that RWA businesses may touch upon include but are not limited to: securities business licenses as stipulated in the Securities Law, derivatives business licenses as stipulated in the Futures and Derivatives Law, and deposit and loan business licenses as stipulated in the Banking Supervision and Administration Law. Especially in the process of asset tokenization, if deemed as "securities issuance," it must comply with the procedural requirements for public issuance stipulated in Article 12 of the Securities Law, or face administrative penalties. The SEC's enforcement action against Paxos, the issuer of BUSD in 2023, is a real example of procedural compliance risk.

Looking back at the development of P2P, many platforms initially ignored procedural requirements such as filing management and fund custody, believing that "substance is more important than form," ultimately facing comprehensive withdrawal due to procedural flaws when regulation tightened. RWA practitioners should actively embrace regulation, maintain communication with regulatory agencies, and fully understand the procedural requirements for digital assets and traditional financial businesses in various jurisdictions to ensure procedural compliance in business operations. Particularly in cross-border business scenarios, it is necessary to simultaneously meet the procedural requirements of multiple legal jurisdictions, such as the location of assets, issuance, and trading, establishing a matrix compliance management system.

Third Layer: Administrative Substantive Violation Risk—Lack of Risk Control and Investor Misalignment

This layer of risk has touched upon substantive compliance issues in business, mainly manifested in inadequate risk control mechanisms, lack of investor suitability management, and insufficient asset quality control. In RWA business, if high-risk real estate projects are tokenized and sold to ordinary investors without sufficient risk warnings and qualified investor screening, it constitutes an administrative substantive violation; if the management of stablecoin reserve assets is opaque and lacks liquidity, it may also face regulatory penalties.

From the essence of financial regulation, the core of administrative substantive compliance is to ensure that financial risks are controllable and that investor rights are fully protected. China's "Implementation Measures for the Protection of Financial Consumer Rights and Interests" clearly require financial institutions to establish investor suitability management systems, and RWA businesses, as an emerging financial form, should also adhere to these basic principles. The collapse of the Terra/Luna ecosystem in 2022, which superficially appeared to be a technical failure of algorithmic stablecoins, was fundamentally a systemic lack of risk control mechanisms, serving as a warning for risk management in RWA businesses.

The common issues of maturity mismatch, insufficient risk preparation, and false listings prevalent among P2P platforms are typical cases of administrative substantive violations. RWA practitioners need to adopt measures that combine technology and law, such as establishing a blockchain-based transparent disclosure system, designing dynamic risk assessment models, and implementing strict investor certification procedures to substantively ensure that business risks are controllable. Particularly in terms of asset quality control, traditional financial industry due diligence standards can be introduced, combined with the traceability of blockchain technology, to build a comprehensive risk management system throughout the asset lifecycle.

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